Learning to Define Employees vs. Independent Contractors – Top 5 Questions to Ask Before You Hire

According to the U.S. Bureau of Labor Statistics, there’s a significant increase in the employment of consultants/independent contractors. In fact, the consulting industry is expected to experience 83% growth—an anticipated gain of more than 800,000 jobs – over the next decade.

Because of the sluggish economy, businesses are reluctant to hire full-time employees, and have instead hired independent contractors to support their workload. Unlike full-time employees, contractors offer a low cost alternative, because are hired as needed and without the added expense of benefits.

Companies should definitely have a clear understanding of the differences between a full-time employee and an independent contractor, but to help guide you, the IRS has created legal definitions of an independent contractor and a regular employee.

Here are 5 important questions to ask before you hire a contractor to work for your organization.

Who will control the amount and what type of work they’re doing?
If you have control over how, when, and where the person does his work, he’s most likely an employee. With a contractor, how he chooses to meet deadlines, how and where he accomplishes the tasks assigned, is up to him.

Who owns the computer/equipment they use for work?
Employees typically utilize the company’s equipment, whereas for a contractor, the working equipment is not the employer’s responsibility.

Are you treating the contractor as an employee?
Very few employees are under contract while most contractors should be. Start dates, end dates, responsibilities, etc, should be clearly spelled out for contractors.

Is the contractor free to work for other people?
For instance, if a graphic designer were classified as a contractor, they would not need your permission to design a logo for another business.

Is your company following proper employment practices?
If your business employs contractors, it’s worthwhile to make sure you’re in compliance with the law (state and federal), as well as any other standard codes of conduct.

Having a clearly defined role for your employees is half the battle – you also have to guard your assets from any risks associated with hiring independent contractors. Be sure you have a proper EPLI (Employment Practices Liability Insurance) policy in place.

EPLI coverage helps protect you against potential claims from your employees or contractors that result from the general conduct of your business. Key elements of coverage for an EPLI policy includes coverage for all employees, independent contractors and leased employees, as well as coverage for third parties.

To learn more about why you should obtain this crucial coverage for your business, please contact us at 201-847-9175 or email info@axisins.com.

Our professional liability specialists can answer your questions and provide the right solution for your business.

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